What is the difference between insurance policy and insurance certificate?

There are 3 types of cargo insurance documents available in international marine cargo insurance market.

These are insurance policy, insurance certificate and declaration under an open cover.

Declaration under an open cover is not used so frequently in daily practice comparing to remaining two insurance document types. 

For this reason knowing details of insurance policy and insurance certificate is very important not only for exporters and importers but also other foreign trade participants.

Today I would like to clarify the differences between an insurance policy and insurance certificate on this article.

What is a cargo insurance policy?

Insurance policy is a legally binding written document, which is issued by insurance company or underwriter to policy holder or insured/assured. 

Just like bills of lading (Bill of lading states terms and condition of the carriage as a transport document), insurance policies define the terms and conditions of the insurance contract and serves as a legal evidence of the insurance agreement.

Insurance Policy Sample
International marine cargo insurance policies are generally issued subject to ICC Cargo clauses such as Institute Cargo Clauses (A), Institute Cargo Clauses (B) and Institute Cargo Clauses (C). 

An insurance cargo policy should specify the terms on which the indemnity cover has been provided by giving an express reference to one of above mentioned ICC cargo clauses.

Furthermore, an insurance cargo policy may mention additional risks covered such as war risks and strike risks.

In some occasions, insurance cargo policies indicate that the cover is subject to a franchise or excess (deductible).

Other information that could be mentioned on cargo insurance policies are:
  • Amount of insurance premium 
  • Shipment details such as port of loading, port of discharge, vessel name and voyage number, description of goods etc. 
  • Currency of the insurance cover 
  • Insurance cover amount 
  • Insurance company's agent at the port of destination 
  • Procedures for the claim and required documents
Important Aspects of Insurance Policies
Insurance policies issued by the insurance companies for specific transactions. An insurance company gets the details of the shipment from the policy holder and prepares his insurance policy offer.
If insurance holder agrees on the terms and conditions as well as insurance premium, then the insurance company or the underwriter issues the insurance policy.
An insurance policy generally issued when the goods are loading and expires on completion of unloading from the carrying vessel at the port of destination.
What is a cargo insurance certificate?

In some cases, exporters or importers do not prefer to make insurance for each shipment separately, but they sign an insurance cover for a certain period of time such as 1 year. 

During the insurance period, as illustrated 1 year on the above example, exporter's all shipments will be covered with a cargo insurance. Periodic insurance contracts are also known as open cover. 

In case the exporter, whom uses an open cover insurance, needs an insurance document for a specific shipment, then insurance company issues an insurance certificate.


Insurance Certificate Sample
Insurance certificates are not issued as a stand alone insurance document for a specific shipment, but they are issued under an open cover.

Both insurance policy and insurance certificate should be issued by an insurance company or an underwriter. 

Both documents should state identical information such as:
  • Insurance terms and additional risks covered 
  • Amount of insurance premium 
  • Shipment details such as port of loading, port of discharge, vessel name and voyage number, description of goods etc. 
  • Currency of the insurance cover 
  • Insurance cover amount 
  • Insurance company's agent at the port of destination 
  • Procedures for the claim and required documents

What is the difference between insurance policy and insurance certificate?

May be the only difference between insurance policy and insurance certificate occurs under letter of credit payments. According to L/C rules, an insurance policy is acceptable in lieu of an insurance certificate or a declaration under an open cover. But reverse situation is not valid.

As a result, if you are not dealing with a letter of credit there would be no difference between an insurance policy and insurance certificate. 

If you will be presenting documents under a letter of credit, then you should keep in mind that you can present insurance policy instead of an insurance certificate. But you cannot present an insurance certificate instead of an insurance policy under a letter of credit.
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